Hong Kong-China travel flip is a new headache

Reverse trip. Hong Kong retailers and landlords who were hoping for a post-pandemic rebound in Chinese tourism will have to wait longer. It is one year since the border reopened and fewer mainland tourists are arriving. Those that do are spending less in what was and remains their most popular holiday destination. Meanwhile, Hongkongers are flocking to Shenzhen and other cities up north in increasing numbers. Part of this shift looks permanent, and it presents fresh headaches to the finance hub’s policymakers.

According to figures from the Hong Kong Immigration Department, tourism arrivals from China to Hong Kong amounted to 26.7 million in 2023, down from 43.7 million in 2019 before the pandemic. The opposite traffic has been on the rise: Hongkongers made more than 53.3 million trips to the mainland in the same period, which includes journeys for leisure and business. Shopping tours from Hong Kong to the Walmart-owned discount hypermarket, Sam’s Club, across the border are particularly in vogue.

The reversal has become a headache for Hong Kong leaders hoping to boost economic growth amid a downturn in the property market. The tourism industry accounted for 3.6% of Hong Kong’s GDP before the pandemic, yet its importance is greater. The sector makes up 6% of total employment while spending from Chinese tourists is a support to many retailers and luxury brands including Louis Vuitton and Prada. Shares of Wharf Real Estate Investment, which owns Hong Kong’s iconic Times Square and the busiest malls, have fallen nearly 10% in the past 12 months. The landlord warned in August that visitor arrivals and retail sales for the first half of 2023 across its properties have only recovered to 37% and 85% of pre-Covid levels in 2019 respectively.

While mainland Chinese consumers’ willingness to travel abroad will improve once the onshore economy rebounds, Hong Kongers have been gradually spending more and more of their incomes up north – a trend that looks to be here to stay. Besides cost, many simply prefer the facilities and customer service across the border. Greater integration between Hong Kong and mainland cities – such as in payment systems and transportation links, have only made it easier. For many local businesses in the finance hub, losing both tourist and local consumers is a double whammy.

One quick solution might be the introduction of a departure tax for outbound travelers. Such a scheme could bring a total revenue of HK$2.3 billion ($295 million) annually if it charged 90 million folks HK$25 each, according to Citi analysts. Yet for Chief Executive John Lee, that might go against Beijing’s policy preference to push for quicker economic integration among Greater Bay Area cities including Hong Kong. Whatever happens, the centre’s competitiveness will continue to be tested.